Is Offshoring The Major Reason For IT Unemployment?

Offshore outsourcing has had little impact on joblessness so far, but that could turn around in a big way soon.

Some observers tracking the U.S. labor force question whether outsourcing IT development overseas has contributed to the relatively high IT unemployment rate.

The impact offshore outsourcing had on the IT unemployment rate, which averaged 5.8 percent during the first nine months of 2003, was likely minimal, they say. Still, they caution that offshore outsourcing could play a larger role in IT unemployment if steps aren't taken to upgrade domestic business-technology skills.

In the years between the end of the recession in the mid-1990s and the dot-bust of 2000, IT unemployment hovered around 2 percent, while overall joblessness averaged several percentage points higher. Now, the difference is three-tenths of a percentage point, with the overall unemployment rate for the first nine months of the year averaging 6.1 percent.

Yet, the perception exists that IT unemployment is higher because of all the talk about offshore outsourcing, says Ken Goldstein, an economist at the Conference Board, a big-business trade organization. "I'd bet if you took a survey, most people would think the IT unemployment average is higher than the overall average because all they're hearing about software development is being outsourced to Delhi or Calcutta," Goldstein says.

Much of offshore outsourcing involves programming, and the unemployment rate for programmers during the first nine months of 2003 averaged 7.1 percent, the highest among all categories of IT workers. In addition, the type of computing outsourced overseas doesn't necessarily require the latest technology skills. With younger IT pros more likely than their older cohorts to master new skills, it's the aging technologists with dated skills who are most threatened by offshore outsourcing. Indeed, IT unemployment increases with age, with nearly 6.9 percent of workers in their 50s unemployed.

Offshore outsourcing and growing obsolescence of technical skills haven't reached a crisis level yet, but higher IT unemployment serves as a warning sign that steps need to be taken by to improve skills, says Thomas Kochan, an MIT management professor. Those involved in IT--user companies, vendors, trade associations, and educational institutions--must devise ways to nurture the profession, he says.

"It hasn't reached the danger level; we have a window of time, five or 10 years, for IT professionals to sit down and talk about what it'll take to maintain the knowledge and skills of the workforce," Kochan says. "Nothing is preordained."